Parking is moving online. It’s more and more operated on online platforms that bring drivers and parking providers together. And just like in the travel industry, there will be brokers. How are parking brokers different from travel brokers?
A while back, we had an interesting talk with the CEO of a fast-growing parking company, let’s call him John. He had previously worked for an airline, and he had also been involved in a car rental business. He had seen the online revolution of both industries: how all the market interactions have moved to webpages operated by brokers.
Most parking permits will be sold on online, just like flights
At the moment, the situation is the following: instead of the traditional over-the-counter model, commodity markets have transformed into online markets. Two thirds of travel arrangements are made on websites such as skyscanner.com, which are so-called online transaction brokers for travel. The same is true of many other commodities, such as car rentals.
“The airline and car rental businesses are yield-management businesses, which means that the companies operating in these industries are constantly looking for ways to increase their occupancy rates,” John explained.
Brokers bring the supply and demand together on their platform, and in turn take a slice of the revenue of each made sale. Online brokers usually promise to generate more leads for these traditional businesses, but they also create some controversy. So, parking companies need to educate themselves on what their future business actually looks like.
Airlines have to take part in race-to-the-bottom pricing
When a consumer wants to book a flight, they look for one thing: price. The travel destination is the same, the only thing that changes with different airlines is the price. To get customers to choose a certain airline, brokers are in the power position because the consumers come to their websites to look for a good deal. So, to get brokers to promote your airline, you need to pay the best provision. This is an ongoing pattern, where you compete for customers by giving away a chunk of your revenue to those brokers who bring the customers to you instead of the next airline.
John was more than familiar with the phenomenon: “We’ve seen what happens in the ecommerce world of travel. Because most of the sales are done on these online platforms, airlines are absolutely reliant on them and end up paying increasing commissions just to keep their flights decently full” he said. “The competition is fierce, and to win over those customers for leftover seats, they pretty much have to surrender to the hands of brokers because they control the supply.”
Same goes for car rentals. Because the product doesn’t vary in between the rental shops, brokers can steer sales in whichever direction based on who rewards them the best.
“Parking is a commodity business just as well, so there’s a lot of that ‘friend or foe’ suspicion around when it comes to using brokers to get more customers to parking garages. Parking professionals want to protect themselves from the price-war and lower margins.”
So, is parking at risk of submitting itself completely to the hands of brokers? Let’s take a look at how parking as a business differs from flights and car rentals.
Parking is different: instead of price, location is the deciding factor
The one fundamental difference when comparing the travel industry with parking is that parking is purely location-tied. A parking garage is not competing against another one across town, although that would be the traditional model with ecommerce. Instead, the demand is specific to a certain location at a certain time with a margin of a few blocks and a few hours, tops.
“You don’t choose a cheaper parking spot fifteen blocks away, you choose the one that’s closest to your destination. Airlines are all selling pretty much the same commodity – a flight will take you to from one airport to another no matter which airline you choose. And car rentals all sell the same model. With parking, it’s different because different businesses have their parking spaces in different places, and location is the primary deciding factor.”
The second difference is price – parking is a low value industry that consists of a high volume of small transactions. With travel, the potential savings are in tens, hundreds (or even thousands with flight and hotel combination offers). Parking is such a marginal cost, that the savings are calculated in cents rather than dollars.
“When it comes to flights, people know they can save a lot of money. With parking, the sums are so tiny that what really matters is time and convenience, and that comes from finding a parking space close to where you need to be,” John explained. “In other words, a space close to your destination is far more valuable than the one 500 meters further. To be honest I don’t see how parking brokers could change this.”
Parking brokers can actually help attract customers without the provision war
So, parking brokers are not and cannot be bidding parking businesses against each other because of the nature of the industry: supply is location-dependent and transactions are low cost. The core of parking brokerage is actually on matching the customer with the most relevant parking space, not winning and losing customers.
This, we were told, is the key: “With parking brokers, you are not getting caught up in the bidding war of lowering prices and relying on commissions. Instead, you are able to broadcast your business to those who need a parking space in a specific location at a given time.”
“By being able to communicate availability, price and special deals, it’s possible to get those customers’ attention and make them aware of your business. ”
Besides, like it or not, brokers are here to stay
There is one more point that reveals why parking companies should not turn their backs on brokers.
“We realize that parking is anyway going to be an online business sooner rather than later,” John concluded. “And being reluctant will leave us out of what will be the future of this industry. By embracing parking brokers we will be able to keep up with the dynamic market in its rapid changes, and to continue offering our customers the best possible experience.”
The benefits of going online are clear, and the change is an unstoppable force. The online marketplace for parking will be a great benefit for parking providers, because they can finally reach their customers without the barriers of hardware.